WRAPUP 5-Ukraine president calls for new anti-rebel offensive as crisis deal falters

(Adds senior U.S. official on Kerry-Lavrov call, paragraphs
13-14)

* Acting Ukraine president demands new offensive

* Biden says in Kiev that Russia must act to defuse crisis

* Moscow calls expectations of rapid progress "naive"

* Effects of sanctions can be minimised - Medvedev

* U.S. vice president tells Ukraine to tackle corruption

By Alastair Macdonald and Darya Korsunskaya

KIEV/MOSCOW, April 22 Ukraine's acting
president, Oleksander Turchinov, called on Tuesday for
government forces to relaunch an offensive against pro-Russian
rebels after a local politician from his own party was found
dead with signs of torture.

Kiev's first push failed last week to retake one of the
towns in the mainly Russian-speaking east occupied by the
separatists, and its military has largely suspended operations
since the United States, Russia, Ukraine and European Union
signed a deal in Geneva last week intended to calm the crisis.

But the agreement is already in trouble, with Washington and
Moscow putting the onus on each other on Tuesday to ensure that
it is implemented, including a stipulation that the rebels must
disarm and leave the government buildings they have occupied.

In an appeal that may complicate European efforts to mediate
the crisis, Turchinov said two "brutally tortured" bodies had
been found near Slaviansk, the objective of the failed Ukrainian
army offensive. One was that of Volodymyr Rybak, a member of
Turchinov's Batkivshchyna party, who had recently been abducted
by "terrorists", he said in a statement.

"These crimes are being carried out with the full support
and indulgence of the Russian Federation," he said. "I call on
the security agencies to relaunch and carry out effective
anti-terrorist measures, with the aim of protecting Ukrainian
citizens living in eastern Ukraine from terrorists."

Police said the body of a man who suffered a violent death
had been found in a river. It resembled Rybak, a local
councillor in the town of Horlivka, near the regional capital of
Donetsk, but formal identification would need further work, they
added.

Batkivshchyna is led by Yulia Tymoshenko, a former prime
minister who is running in a presidential election scheduled for
May 25.

Ukraine's poorly resourced forces had previously shown
little sign of taking on the gunmen who started occupying towns
and public buildings two weeks ago. Turchinov's call may not
lead to much more action but could fuel recriminations between
Moscow and Kiev about who is failing to honour the deal.

TIME IS SHORT

U.S. Vice President Joe Biden told Russia on Tuesday that
"time is short" for action on defusing the crisis, but Moscow
refused to be rushed, saying it could handle any tougher
economic sanctions the West might impose.

Speaking on a visit to Kiev, Biden called on Moscow to pull
back troops built up on Ukraine's borders and persuade the
separatists to disarm.

"We've heard a lot from Russian officials in the past few
days. But now it's time for Russia to stop talking and start
acting," he told a news conference. "We will not allow this to
become an open-ended process. Time is short in which to make
progress."

The United States has repeatedly warned Russia it faces
"mounting costs" if it fails to ensure full implementation of
the Geneva agreement.

A senior U.S. official said Secretary of State John Kerry
told Russian Foreign Minister Sergei Lavrov in a telephone call
on Tuesday that Washington would impose further sanctions on
Russia if tensions did not de-escalate in eastern Ukraine.

Kerry "urged Russia to tone down escalatory rhetoric, engage
diplomatically in the east with the OSCE and Ukrainian
government, and issue public statements calling for those
occupying buildings to disarm and stand down in exchange for
amnesty," the official said.

The Foreign Ministry in Moscow said Lavrov told Kerry in the
call that Ukraine itself should take urgent steps to implement
the Geneva accord.

The Russian ambassador to the United Nations, Vitaly
Churkin, ruled out rapid progress. "Of course, it would be naive
to suppose that all this could happen quickly," Churkin said in
an interview on Rossiya-24 television.

Russia's annexation of Crimea from Ukraine and the eastern
rebellion have deepened the worst East-West crisis since the
Cold War, and Biden demanded the removal of Russian forces near
Ukraine's frontier, which Moscow insists are merely on
exercises.

"No nation should threaten its neighbours by amassing troops
along the border. We call on Russia to pull these forces," Biden
said after meeting Ukrainian Prime Minister Arseny Yatseniuk.

The United States and NATO have made clear they will not
intervene militarily in Ukraine, which is not a NATO member.

But the Pentagon said on Tuesday it was sending about 600
soldiers to Poland and the three Baltic states for infantry
exercises, to reassure NATO allies about U.S. commitments to
them following events in Ukraine.

HOSTAGES TO POLITICAL GAMES

Moscow denies it is orchestrating the militants, who say
they want the chance to join Crimea in becoming part of Russia
following the overthrow of Moscow-backed President Viktor
Yanukovich after months of street protests in Kiev.

But Washington has said it would decide "in days" on
additional sanctions if Russia does not take steps to implement
the agreement.

In Moscow, Prime Minister Dmitry Medvedev promised the
country could deal with tougher measures if necessary.

"We shan't give up on cooperation with foreign companies,
including from Western countries, but we will be ready for
unfriendly steps," he told parliament.

"I am sure we can minimise their impact," he said. "We will
not allow our citizens to become hostages of political games."

So far the United States and EU have imposed visa bans and
asset freezes on only a limited number of Russians over the
annexation of Crimea last month.

The chief mediator for Europe's OSCE security body in
eastern Ukraine met separatist leaders occupying buildings in
Donetsk on Tuesday. He called their talks "constructive" but
gave no indication they would leave.

LESS DEPENDENCY

In Brussels, EU diplomats said the bloc was holding off from
imposing further sanctions until it sees whether the Geneva deal
works.

The EU has been more cautious than the United States in
imposing sanctions on Russia, with some member states worried
about antagonising a country that supplies a third of Europe's
gas.

Both sides stressed on Tuesday they wanted to depend less on
the other over energy.

Medvedev said Russia was more interested than ever in
diversifying its gas exports and described talk of Europe
importing U.S. gas as a substitute as "a bluff".

Partly as a result of the Ukraine crisis, the EU is
stitching together measures such as raising electricity
production from coal and renewables.

Russia's top natural gas producer, Gazprom,
maintained, however, that Europe still needed its supplies.
According to most scenarios, long-term gas demand would increase
in the European market, while production there would decline, it
said in a statement issued after a board meeting.

Reuters calculations suggest the EU steps could slash
imports from Russia by around 45 billion cubic metres by 2020,
worth $18 billion a year, or the equivalent of a quarter of what
Russia currently supplies.

During Biden's trip, the United States offered Ukraine a new
$50 million aid package to help with economic and political
reform. Of that, $11.4 million was earmarked for helping with
the election to choose a successor to Yanukovich, the White
House said in a statement.

While small in relation to Ukraine's huge needs and a $1
billion loan guarantee already signed with Washington, the
package serves to show support for the new authorities following
the overthrow of the Kremlin-backed Yanukovich in February.

Biden also had tough words for Kiev, saying it must deal
with the endemic graft that has sapped the economy and public
faith in the state. "To be very blunt ... you have to fight the
cancer of corruption," he told lawmakers.
(Additional reporting by Jeff Mason, Natalia Zinets, Alastair
Macdonald and Richard Balmforth in Kiev, Nigel Stephenson in
Moscow and William James in London, and Arshad Mohammed in
Washington; Writing by David Stamp; Editing by Giles Elgood,
Will Waterman and Peter Cooney)

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